FX.co ★ EUR/USD pair and its contradictions. The outlook for the coming week.

EUR/USD pair and its contradictions. The outlook for the coming week.

Good day. Before I begin, I would like to apologise for answering your letters for so long, there were some negative circumstances. And now it is time to go back to the market.

Briefly about last week events.

The week began from sharp strengthening of high-yielding currencies against the U.S.dollar. The reason for this rally turned out to be the hope of market participants regarding that the economy has entered the phase of recovery. The market players confidence was beared out by the statistics, which came in better than expectations. The U.S. ISM manufacturing index stood at 48,9 in July 2009, while average estimates were reaching 46,7 points. The housing market data also seems to be positive. In June the number of pending home sales deals rises the 3d sequent month, that increased the market participants confidence regarding the climate stabilization in the U.S. real estate market. Also the market was positively impacted by the British data, the PMI index ticked up to 50.8 points in July versus 47.4 in the month earlier, that exceeded significantly the forecasts of 47.7 points. The current market mood was also supported by increase of the crude oil price and stock exchanges.

That was the end of cheerful tune in the market, and till Thursday the pairs were qouting in tight narrow diapazon while waiting for the ECB and Bank of England decisions concerning the interest rates, and the U.S. unemployment figures. The ECB\'s decision did not exert any influence on the market, as the rate turned out to be unchanged, coming in line with the expectations. At the press-conference Triche hinted that he sees no necessity in changing the rate in the next months, as the present rate is acceptable. The Bank of England surprised the market participants on the contrary, expanding the quantitative easing program by 50 bln. pounds, 25 bln. pounds more than the previous limit, set up before. In addition, the Bank of England gave very pessimistic estimate of economic condition, announcing that the recession appeared to be more severe than it was considered and that the crisis bottom is round the corner. The result of this sentiment took place soon and the British currency was removed from its highs sharply, and the increased demand on the dollars also affected the Euro rate.

And finally, Friday. The U.S. jobless report, aspired the market, showed less job places loss than it was predicted by 247,000, consensus -325,000. The released data stimulated the risky assets purchase, but this trend did not stand too long, after that the dollar was bought in large-scale due to concerns about that in the next January there may emerge a necessity to raise the interest rates in the USA.

Now, concerning the coming week.

You will have to pay your attention to the FRS and Japan decision regarding its monetary policy. From the American data worth pointing out the trade balance and inflation reports, manufacturing production and the U.S. consumer sentiment index. Apart from this, notice the external trade and the UK labour market datums, and also the CPI and preliminary Eurozone GDP for Q2. On the whole, the week is not going to be oversaturated. So, most likely that the market will be led by the investors mood and the technical aspect.

Concerning the technical aspect at the graphs.
To remind you, look through the last review estimates of essential resistance for pound and Euro.

*** At the day graph, the British currency continued its trend, it has been trying to break through its bounds for a week already. Hereby, the Britisher found a support at 28MA, for now this support sustains its fall the second week. The general trend — flat. The month scale — the zone 1,6590-6620, the resistance zone 200MA and 50,0 and 23,6 Fibo levels. It is rather strong resistance in this range. That is why it is technically logical to try selling from the levels mentioned above. In case of confident break through of these levels, the next upside target will be around 1,77-1,7800.

The day graph of Euro — the trend continuation. The same conditions, the figure is not broken through. And very serious resistance 1,4400-4420. The additional resistance in the upward movement is the green median “b”, which Euro can not overcame, the negative moment is that it is rising. The general picture at the graph — narrowing flat. At the week graph the resistance range of 89MA around 1,4300-4330, the single currency is trying to overcome this level the third time, two previous trials failed. The sales are resonable from the levels mentioned above. In case of these zones break through, the upside targets are near 1,5200-1,5400. Herewith, the day figure of trend continuation is in force and the month figure “double bottom”. ***

Put aside the British currency, draw attention to the Euro-dollar pair.
At the last week beginning, the 16-nation currency managed to break through its trend continuation figure, then was witnessed the zone 1,4400-4420, it was recommended for sale. The diapizon stood the pressure, there is no day closing above 1,4420, moreover it succeeded to throw the Euro far than 89 MA at the week graph - 1,4300-4330. Those who managed to sell at these prices may be congratulated, it is a good position — good profit. But all this appears to be not so good concerning the further actions. The levels 1,4400 and 1,4330 are not tested.

Especially, the last one. The level of 89MA is not tested by the week closing, but there was a chance. Look at the graph with the Euro diapazons. We can see a clear rollback from the upper bound of big diapazon, which was reached by the European currency in the late September of last year. Presently, the price is to move to the middle of this diapazon - 1,3400-3500.

The day graph implies the day rising trend, correction to the bottom channel line. From the technical aspect I see more signs of downturn, rather than improvement.

The figure of Russian market leader and Dow index turns seems to be very interesting — the targets are marked by the orientators. The dollar index is in the downside channel, at its upper bound, with the upside target. Don\'t corrupt yourself with this situation, look through the Friday events. The stock exchange was strengthening as well as the greenback, not the Euro. I suggest that the market will have a new tendency. At pesent, you must be very careful in the market. Aside from this, it may be considered that after the weekend and Friday data there will be a lot optimism regarding the economic recovery, the investors will forget about the rate raising in January and move to 1,4400, if the data remains stable. The risk is across the board now. But it is acceptable to try buy at current opening prices around 1,4160-4180 or more conservative variant to buy at 1,4100 – 1,4115, target 1,4256 and 1,4330, as you wish. The stop is better to be below 1,3950. If it is too much, then act in accordance with your MM. Let\'s see what will bring us this week.

Have a nice week.

August 09, 2009

Aleksey Goncharov